Vietnam Industry and Trade News Bulletin for January 7, 2016

A. GENERAL ECONOMIC HIGHLIGHTS

1. WB Forecast: Modest Global Growth in 2016 In its Global Economic Prospects report released on January 6, the World Bank forecasts the global economy will grow by a modest 2.9% in 2016, a slight improvement from 2.4% in 2015 . The modest growth is attributed to a slowdown in major emerging economies like China (forecast at 6.7%) and Brazil . However, the WB notes that strong growth in Vietnam and moderate recovery in Thailand will help offset weak growth in commodity-dependent nations like Indonesia and Malaysia . Risks include US Fed monetary tightening and escalating geopolitical tensions .

2. HSBC: Vietnam Needs Tighter Monetary Policy HSBC Vietnam’s latest macroeconomic report warns that inflation could rebound in the second half of 2016, potentially requiring a tighter monetary policy . While Vietnam achieved a GDP growth of 6.7% in 2015 (an 8-year high) with low inflation (0.6%), HSBC predicts headline inflation could rise to 5.1% in the second half of 2016 due to base effects from stable oil prices and rising food costs . The report suggests the State Bank of Vietnam should proceed cautiously and begin gradual tightening if inflation exceeds 5% .

3. SMEs Struggle with Fragmented Policy Support At a consultation workshop for the 2016-2020 SME development plan, experts highlighted that 99% of small and medium-sized enterprises (SMEs) do not aim to become “giants” but simply need stable policies to survive and escape poverty . Deputy Minister of Planning and Investment Dang Huy Dong admitted that support programs are currently fragmented across different ministries, lacking cohesion . A Fulbright economist added that SMEs currently face the most harassment and institutional barriers from state agencies .

4. Dependence on Chinese Goods Economist Le Dang Doanh warned that consuming Chinese goods equates to paying wages for Chinese workers while domestic laborers struggle . In 2015, Vietnam’s trade deficit with China reached $32.3 billion, a 12.5% increase . Experts urge stricter control over cross-border trade, noting that dependence on low-quality Chinese technology and contractors hinders Vietnam’s economic modernization .

5. Need for High-Tech Investment for AEC Integration With the establishment of the ASEAN Economic Community (AEC), laborers in 8 specific professions (including engineering, architecture, and medicine) can move freely within the region . However, Minister of Labor, Invalids and Social Affairs Pham Thi Hai Chuyen warned that Vietnamese labor skills and foreign language proficiency are lower than regional peers, creating pressure . Vietnam must invest in high-tech professions to compete .

6. Vietnamese Firms Dominate Real Estate M&A in 2015 In 2015, Vietnamese enterprises dominated Mergers and Acquisitions (M&A) in the real estate sector, helping to resolve significant inventory and bad debt issues .

7. FDI Highlights 2015 Vietnam attracted nearly $22.8 billion in registered FDI in 2015 (up 2.5%) and disbursed $14.5 billion (up 17.4%) . The processing and manufacturing sector led with $15.23 billion (66.9% of total capital), followed by electricity production ($2.8 billion) . The FDI sector recorded a trade surplus of nearly $17.15 billion .

8. Strict Control on Overloaded Vehicles In 2015, authorities inspected over 635,000 vehicles, detecting over 50,000 violations and collecting 345 billion VND in fines . The campaign has virtually eliminated overloaded trucks on long-distance routes (North-South), reducing the overall rate of overloaded vehicles by approximately 91.5% .

9. Tet Bonuses in Quang Nam The highest Tet bonus in Quang Nam province is 51 million VND (private sector), while FDI firms average around 6.7 million VND . Most bonuses increased compared to last year .

B. INDUSTRY AND TRADE NEWS

I. OIL & GAS

• Dung Quat Refinery Success: Despite falling oil prices, the Dung Quat Oil Refinery (managed by BSR) achieved nearly 95,000 billion VND in revenue and nearly 6,000 billion VND in profit for 2015, contributing over 20,300 billion VND to the state budget . BSR plans to expand capacity to 8.5 million tons/year by 2021 .
• Victory Nhon Hoi Project Stalled: The $22 billion Victory Nhon Hoi refinery project in Binh Dinh is delayed. Investors PTT (Thailand) and Saudi Aramco have postponed their decision until June 2016 to reassess feasibility due to the global oil price crash .

II. ELECTRICITY

• No Price Hike Proposal Yet: EVN has not proposed an electricity price hike for 2016, although the average price is expected to rise by 1.3% due to changes in load structure and increased commercial consumption .
• Service Accountability: Deputy Prime Minister Hoang Trung Hai stated that public dissatisfaction with electricity prices is the industry’s fault for lack of transparency and service quality (outages, instability) .
• New Control Center: The National Load Dispatch Center (A0) officially launched a new SCADA/EMS system to control the power system and electricity market more effectively .

III. HEAVY INDUSTRY

• Mechanical Engineering Challenges: As TPP approaches, domestic mechanical firms face challenges due to small scale, low capital, and reliance on imported raw materials (mostly from China) . Vietnam missed the “China + 1” shift, with investors moving to India or Indonesia instead .

IV. LIGHT INDUSTRY

• Singapore Investment: Maple Co., Ltd (Singapore) was granted an investment certificate to build a $110 million garment factory in VSIP Bac Ninh, with a capacity of 22 million products/year .

V. EXPORT – IMPORT

• AMF Tax Reduction: The Ministry of Finance proposed a 5% import tax on Anhydrous Milk Fat (AMF) instead of 15%, avoiding a retroactive tax collection of nearly 1,000 billion VND for dairy companies .
• Auto Imports Surge: Vietnam imported an estimated 112,000 cars in 2015 ($3 billion). Truck imports from China saw massive growth .
• Pangasius Decree Paused: The Government agreed to suspend enforcement of controversial regulations on ice glazing ratios and moisture content for Pangasius exports under Decree 36 .
• Tobacco Quota: The 2016 import quota for raw tobacco is set at 48,620 tons .
• Small-Scale Rice Exports: Exports of rice to China via small-scale cross-border channels are increasing as businesses find formal channels too procedurally complex .
• Ensure Milk Ban Proposal: HCMC Customs proposed banning the import of Ensure milk labeled “Not to be sold in Vietnam or Mexico” to prevent smuggling and fraud, as safety cannot be certified .

VI. DOMESTIC MARKET

• Car Prices Jump: Car prices rose by 20 million to nearly 1 billion VND in early 2016 due to changes in Special Consumption Tax calculations and exchange rates .
• E5 Gasoline Scarcity: Despite mandates, E5 gasoline remains hard to find in HCMC due to poor location of pumps and lack of advertising. Sales volume at some stations is only 4-7% of total sales .
• Tet Anti-Smuggling: The Ministry of Finance issued a directive to tighten control at borders, ports, and airports to prevent smuggling before and during the Lunar New Year .